Key Takeaways
- LTV measures your loan amount against your home's value percentage.
- Higher LTV can lead to higher interest rates and PMI costs.
- Conventional loans often allow up to 95-97% LTV.
- A higher LTV means less cash needed upfront at purchase.
Article Summary
Loan-to-value (LTV) is the measure of a home's mortgage balance to its market value, expressed as a percentage.
Loan-to-Value: Explained in Plain English
Loan-to-value, often abbreviated as LTV, is a ratio that describes how much is owed on a home compared to what the home is worth. Along with credit scores and debt-to-income, loan-to-value is one of the three major components of a strong mortgage approval.
Loan-to-value is the opposite of how much equity a home buyer has in their home.
For example, when a first-time home buyer uses a no-downpayment mortgage to buy a home, that home buyer has 0% equity in their home. Therefore, the home's LTV is 100 percent.
When a home buyer makes a three-percent equity down payment, the home's LTV is 97%.
Note that mortgage rates on conventional loans change based on LTV, and rates on FHA, VA, and USDA loans generally do not.
Average LTV by Loan Type (2024)
| Loan Type | Average LTV |
|---|---|
| USDA | 97.89% |
| FHA | 95.54% |
| VA | 94.11% |
| Conventional | 75.07% |
Maximum LTV, Common Mortgage Types
When you buy a home, the loan-to-value (LTV) ratio sets the boundary between how much a lender will finance and how much cash you’ll need up front. A higher LTV means you can buy with less money down, while a lower LTV requires more money due at closing.
LTV maximums depend on the type of mortgage, the property itself, and whether you’ll live in it. For example, a primary residence may allow 100% financing, but an investment property will require a larger down payment.
Maximum LTV by Mortgage Type
| Mortgage Type | Max LTV |
|---|---|
| Conventional – Purchase | 97% |
| Conventional – High Balance | 95% |
| Conventional – ARM | 95% |
| Conventional – 2–4 Unit | 95% |
| Conventional – Second Home | 90% |
| Conventional – Investment | 85% |
| Conventional – Investment 2–4 | 75% |
| HomeReady / Home Possible | 97% |
| FHA | 96.5% |
| VA | 100% |
| USDA | 100% |
Loan-to-Value: A Real World Example
Imagine a first-time home buyer using a 97% loan-to-value (LTV) conventional mortgage to buy their first home. Because the loan's LTV exceeds eighty percent, the home buyer is required to pay private mortgage insurance (PMI), which increases their monthly mortgage payment by a small but meaningful amount.
The mortgage lender tells the buyer that PMI is required until the loan-to-value ratio reaches 80 percent, based on conventional mortgage rules. They estimate this will be achieved in fewer than 3 years, due to home appreciation and regular monthly payments.
Each month, the home buyer monitors their mortgage balance alongside the home's current market value. After two years and several months, the balance has decreased, the home's value has increased, and the home buyer's loan-to-value ratio falls below 80 percent.
The home buyer contacts their lender to request the removal of mortgage insurance. The lender reviews the loan-to-value ratio, verifies the borrower's eligibility, then cancels the PMI.
Common Questions About Loan-to-Value
Get answers to frequently asked questions about loan-to-value ratios, including how they affect mortgage approval, PMI requirements, and how to calculate your LTV.
What is a good loan-to-value ratio?
There are no good or bad loan-to-value ratios. Loan-to-value is only one factor in a mortgage approval. In general, a lower LTV reduces a lender loan risk.
Can I get a mortgage with a high loan-to-value ratio?
Yes, you can get a mortgage with a high loan-to-value. Some mortgage programs are 100% LTV as a feature, including USDA mortgages and VA mortgages. Conventional mortgages allow up to 97% LTV. The FHA mortgage program is 96.5% LTV.
Will my loan-to-value go down after I buy a home?
Generally, a home buyer LTV decreases after purchase because the buyer makes regular mortgage payments, which reduces the principal balance. LTV also decreases as the home value increases. Should a home value decrease, its LTV can rise.
How do I calculate my loan-to-value?
Calculate loan-to-value by dividing the mortgage loan amount by the property value, then multiply by 100 to get a percentage.
